China has sold 13.6 million new vehicles in 2009 and, quicker than expected, become the largest vehicle market in the world. The mainland claims the top spot with around 1.5 million vehicles short of the more or less 15 million units previously sold every year in the United States, though, which was particularly hard hit by the economic slowdown.
More remarkable than being the number 1 is the fact that the Chinese vehicle market has grown by an astonishing 44% in 2009. The most frequently asked question these days is: what are the reasons for such a steep increase?
As most of the time, there are several reasons that play in advantage for the Chinese market. First of all, the growth is driven by a dynamic passenger vehicle sector, and the circumstances for car purchase are undeniably more favourable in China than in the large mature markets. With close to 600 respectively 800 cars per 1000 inhabitants, the markets in Germany respectively in the US are already highly saturated, while at the same time less than 50 cars per 1000 inhabitants in the mainland signify China’s pent-up demand in terms of car ownership. High vehicle penetration makes the developed countries essentially replacement markets where in times of economic constraints the length of car ownership tends to increase, and consumers are likely to slow down the rhythm of vehicle replacement. On the other hand, more than 80 percent of new car buyers in China purchase a passenger vehicle for the first time in their life, and are keen to enrich their lifestyle by an enhanced mobility and to acquire higher social standing by showing-off their prosperity.
Yet, don’t believe that this makes selling cars automatically an easy task. China was not spared by the downturn, even if we know by now that its negative impact was less dramatic than in many other economies around the globe. Still, we should not forget that the mainland sales of new passenger vehicles were declining by the end of 2008 as consumers were increasingly reluctant to spend a lot of money for big-ticket items amid rather gloomy economic perspectives. But the Chinese Central Government proved to be quick and efficient in launching the Automotive Industry Revitalization Program which, among others, included a consumer stimulus program to spur new car purchase. Essentially, the government support consisted of a purchase tax reduction by 5 percent for small and medium sized cars with a 1.6l engine and below, as well as a trade-in subsidy for the rural population. Both measures in fact translated into a consumer benefit of several thousand RMB, and altogether were able to kick-start the stalling new vehicle purchases at the beginning of 2009. As we could observe throughout the year, the stimulus measures not only benefited car sales in the big Tier 1 and Tier 2 cities and in the major local markets along the coastal belt, but also spurred sales elsewhere. Much of the market growth in 2009 has been triggered by a spending spree in the inland provinces.
Government stimulus measures have not only supported private car purchase. Investments in infrastructure and housing have also enabled the commercial vehicle market to record a solid double-digit growth.
Important in all that, the determined state intervention a year ago has contributed a lot to quickly restore consumer confidence, and thus, set free the inland consumption, even if export activities slowed down. It has added to the general sentiment regarding the government’s ability to improve the economic situation, a factor that we won’t find in the democracies of the Western markets. One of the most compelling indications for this is the fact that by mid 2009 the sales of large cars, not at all benefitting from government subsidies, started to gain momentum. By year end, the sales of upper-medium sized and even luxury cars have increased by a remarkable 25 percent.
This suggests that the Chinese economy has already sufficiently strengthened to be able to sustain without state incentives. Nevertheless, the Chinese government apparently does not take any chances on the future market development as it has decided the continuation of subsidies for vehicle purchase in 2010 – with some amendments. The health of the overall economy significantly depends on the strength of the auto market, whose own growth is expected to exceed the increase of the country’s GDP. The objective therefore is to maintain a double-digit growth in 2010 automotive sales. Most experts forecast the market to develop by more or less 15 percent this year.
Will China be able to break the 15 million mark, and become the true number 1 market in the world?
For any further information or enquiry, please contact Klaus at Klaus.Paur@tns-global.com
